To legions of investors, Morningstar and mutual funds go together as readily as Wall Street and Broad. The firm's printed reports, fund-analysis software, and www.Morningstar. Net Web site have set the standard for tracking and interpreting the ever-expanding universe of funds.
This month, Morningstar unveils the latest revision of its Principia software line, version 3.0 for Windows 95, with changes aimed at making it speedier and easier to use. I tried a beta copy and found the program handled nicely. But is Morningstar's software the best choice any longer for an individual investor?
The answer, it turns out, is no. The first reason is that Value Line, long famous for its stock reports, has developed its mutual-fund software into a credible alternative. The second is that Morningstar is phasing out Ascent, a much cheaper version of Principia targeted at amateur investors. With Ascent no longer a practical choice, it's now professional-strength Principia vs. less costly Value Line (table).
If you're at all interested in funds, both programs will wow you. Each displays dizzying galaxies of data points spread across vast spreadsheets. Principia presents 130 data fields on some 8,600 funds--from last month's total return to a fund's position in energy stocks. That doesn't count the records of nearly every fund's portfolio holdings, available only from the top-end Principia Plus.
To test the two products, I used the highest-end versions over several weeks. Happily, Morningstar has come a long way in fixing the most annoying aspect of Principia, the cumbersome switch between the database, where you might research funds, to portfolios you assemble to evaluate and monitor.
Principia's strength remains the depth of its database and its accuracy. Where it remains troublesome is in its occasional complexity. For example, entering commands in the proper order to filter for funds by specific criteria remains tricky and time-consuming. Also, if you work in Windows 3.1, as 30% of Principia users do, you'll be out of luck after July, when Morningstar is set to stop supporting it.
The Value Line Mutual Fund Survey, which came out a year ago in its current form, faced a daunting task in taking on Morningstar. Its database doesn't inspire the same confidence--I came across some obvious errors. And its abbreviated portfolio-holdings lists were often older than Morningstar's. I was also troubled by a calculator set up to reckon aftertax fund returns. Its default setting for the top federal tax rate is 39.4%, when the actual rate is 39.6%.
That said, the Value Line program has decided advantages. Its screening function is easier to understand. It also boasts nifty analytical tools. One function shows how much any one fund behaves like every other in your mix. Another offers a "stress test": Imagine that the stock market plunges 25%, bonds sink 5%, and foreign stocks rise 3%. How might your portfolio perform? This software will give you a clue.
NEW MATH. Two other features really set Value Line apart. The first is that calculator. Its variety of settings--including dates of initial and later investments, tax rates, and sales charges--allows you to see in percentage and dollar terms the outcome of an investment and the taxes you will owe. Value Line also lets you update price data every week through its Web site, www.valueline.com, something Morningstar is still exploring.
Morningstar is abandoning Ascent because it plans to move lower-end customers to its Web site. In May, Morningstar.Net is set to offer an expanded service for $9.95 a month in competition with Microsoft Investor, Standard & Poor's Personal Wealth (like BUSINESS WEEK, a product of The McGraw-Hill Companies), and others. The Internet sites offer good information, but they're much slower and less comprehensive than the Principia and Value Line software.
Morningstar.Net, already a terrific free service, may evolve into a better bet for research-minded amateurs than Value Line's CD-ROM. Until then, Value Line is the way to go.